State report says California film tax credit loses money

In a setback for supporters of California's popular film tax credit program, a new government report has thrown cold water on claims about the credit's return to taxpayers.

A study released by the California Legislative Analyst's Office concludes that the credit program "appears to result in a net decline in state revenues."

Enacted in 2009, the program offers a credit of 20% to 25% toward qualified production expenses. California allocates $100 million annually toward the credit, which can be applied to offset income or sales tax liabilities.

An eight-page report by the LAO critiques previous studies on the credit, in particular one commissioned by the Los Angeles County Economic Development Corp. (LAEDC), which concluded that every tax credit dollar returned $1.13 to the state. The LAO estimates, conversely, that the revenue generated is likely to be less than $1 for every tax credit dollar.

The group says the LAEDC study failed to consider the benefits of alternative public or private uses of tax credits, assumes that productions that received the credit would otherwise have filmed outside of California, and doesn't consider the fact that even productions that filmed in other states often generate some economic benefits in California.

While acknowledging "the total effects of these issues is hard to quantify," the LAO nonetheless concludes that the "net credit benefit is likely much less than reported."

Charged with providing nonpartisan fiscal and policy analysis for the California Legislature, the report was prompted by a request from the Senate Governance and Finance Committee.

The findings come just before lawmakers are set to review a bill that would extend funding for the credit, which is due to expire next year, for an additional five years. A coalition of entertainment industry unions and studios has been lobbying to support the bill, saying it has slowed runaway production.

That finding was bolstered by another study released last week by the Milken Institute. It concluded that California's film tax credit program has helped to stem the flight of movies and TV shows, but would be more effective with more funding and fewer restrictions on the types of projects that can qualify.